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Uncertainty on Overtime Salary Threshold — Certainly Plenty of Ways to Mess Up

As we previously discussed here, in November of 2016, a Texas federal judge granted a nationwide injunction to prevent the Department of Labor (DOL) from increasing the minimum salary threshold for employees exempt from the overtime requirement.  The Labor Department appealed the decision, but briefing was stayed to allow the new administration to form a stance on the policy.  In its recent briefing, Trump’s Department of Labor indicated that it intends to consider raising this threshold, but that the spike formulated by the Obama administration was too high, and the DOL would not defend or enforce that new threshold. 

The DOL stated that it did not support the new threshold developed under Obama, but that it may want to consider its own more modest increase. In his Senate confirmation hearing, Labor Secretary Alex Acosta suggested that he believes an increase from the nearly $24,000 threshold a little more than $30,000 may be appropriate to keep-up with inflation.  However, the DOL indicated that it was reluctant to move forward with the necessary rule-making when the district court’s decision calls into question whether the DOL has the authority to establish such a salary threshold.  The DOL requested the court find that it has the authority to establish a salary level for exempt workers.

In short, it appears unlikely that the Obama rule, increasing the salary threshold to a $913 weekly salary ($47,476 a year) to qualify as a non-exempt worker, will go into effect, and there is still a chance the court finds that the DOL lacks any authority to establish such a threshold. As such, employers can further delay the cost analysis that such a salary threshold hike would require and may avoid such an increase all together.

In the meantime, however, there are still plenty of landmines to navigate regarding overtime pay. Recently, the Supreme Court of the United States declined to hear a case from the Ninth Circuit Court of Appeals that had the effect of entitling employees who declined certain benefits to increased overtime pay.[1]  The City of San Gabriel, California provided a cash payment to employees who declined its health insurance.  The cash payment was provided through workers’ regular paychecks. While the payment appeared as a separate line item on the employee’s paycheck and was subject to federal and state taxes, Medicare taxes, and garnishment, the City designated this payment as a benefit that was excluded from the recipient’s regular rate of pay.  In calculating overtime pay, the City did not consider this payment part of the employees’ regular rate of pay.  City employees sued, citing violations of the Fair Labor Standards Act (FLSA).

The Ninth Circuit concluded that the payment for the unused benefits must be included in the regular rate of pay and thus, in the calculation for the overtime payment rate. The Ninth Circuit explained that the FLSA defines “regular rate” as “all remuneration for employment paid to, or on behalf of, the employee,” subject to a number of exclusions.

The Ninth Circuit did state that this case was a close call, and Ninth Circuit decisions are only binding precedent in Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.  The Ninth Circuit was, however, the first, and so far the only, court to weigh in on this issue, and the Supreme Court declined to disturb the decision.  In sum, this case highlights the need for employers to carefully consider whether any payment outside of any employee’s normal hourly wage could have an impact on a non-exempt employee’s rate of pay for calculating overtime.  At a minimum, pay policies should be reviewed and changes thoughtfully implemented.

[1] Flores v. City of San Gabriel, 824 F.3d 890, 898 (9th Cir. 2016), cert. denied sub nom. City of San Gabriel, Cal. v. Flores, 137 S. Ct. 2117 (2017).

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About this Author

Aubrie K. Kiel, Steptoe Johnson, Labor Rights Litigation Lawyer, Employment Matters

Aubrie Kiel focuses her practice in the area of labor and employment law. She formerly worked as a Law Clerk to the Honorable Arenda L. Wright Allen of the United States District Court for the Eastern District of Virginia and the Honorable Joseph R. Goodwin of the United States District Court for the Southern District of West Virginia.